TAG Oil Ltd. (TAO:TSX.V; TAOIF:OTCQX) began drilling the 1,000 meter pay zone section of the BED4-T100 horizontal well in Egypt's Badr oil field (BED-1), noted a news release.
It should take three weeks at most to finish the drilling and to apply the completion technology, the company said. Once done, it will start hydraulic fracture stimulation of the Abu Roash "F" (ARF) formation in the BED-1.
"The growth and value creation potential, should the horizontal multi-frack well work, is very high," Adam Gill, analyst at Echelon Capital Markets, wrote in a Feb. 26 initiation report on TAG Oil.
Company Primed for Growth
Headquartered in Vancouver, British Columbia, TAG Oil is developing the unconventional heavy oil ARF that potentially contains an estimated 500,000,000-plus barrels (500+ MMbbl) of oil in place.
"We are targeting a large international oil play that has substantial upside," the company said. "While we may include exploration in our strategy in the future, our primary focus for now will be on producing oil and generating cash flow off of bigger, more complex assets."
To "unlock new resource potential" in the ARF, Gill reported, the company is employing a "horizontal multi-frac drilling/completion design." This technology, novel to Egypt, and has rarely been done there, but TAG successfully pulled it off in the ARF with the BED1-7 vertical well.
Within the BED-1 concession, TAG Oil has identified 20 prospective well locations, Gill noted. Over those, multifracking could deliver 1,000−1,500 barrels per day (1−1.5 Mbbl/d) initial production wells and provide recoverable resources of 27 Mbbl/d, according to independent estimates.
The energy company is looking to expand its portfolio and continues to evaluate later-life conventional assets for acquisition as well as potential joint ventures, primarily in Egypt and the broader Middle East/North Africa region.
As for its balance sheet, TAG has no debt and US$13−14 million in cash, with which it can fully fund development of the first horizontal well in the ARF, Haywood Securities reported on Jan. 24.
Also of note, TAG Oil has two gross over-riding royalties on previously owned assets, Gill pointed out. One is 2.5% on gross revenue produced from the New Zealand assets. The other is 3% on gross potential future gas production at the Australia asset.
Oil Poised for a Breakout
Worldwide demand for oil and oil prices are expected to rise this year, and the near-term outlook for oil stocks is favorable, according to the experts.
The International Energy Agency (IEA) forecasts growth this year in global petroleum consumption of 1.2 MMbbl/d, it indicated in its February 2024 Oil Market Report.
Regarding the oil market, Technical Analyst Clive Maund asserted in a January note that it appeared to have completed a bottom and a breakout was imminent, an uptrend that could be "surprisingly strong." Oil stocks, he added, looked "very well placed to start higher again."
As for the oil price, the Fitch Ratings, in a December 2023 note, estimated the Brent crude oil price will average US$80 per barrel this year. This is an increase from Fitch's previous assumption of US$75/bbl, which the credit agency revised, it wrote, to reflect "OPEC+'s continuing tight control oversupply."
The EIA's 2024 forecast for the Brent oil price is an average of US$82 per barrel.
With respect to Egypt, oil is a major contributor to its economy, but the country now is a net importer of crude, Echelon's Gill pointed out. As such, Egypt would like to see greater domestic production.
"Should TAG be successful, we would expect to see the energy ministry grant the company additional opportunities," the analyst added.
The Catalyst: Well Outcome
Next from TAG Oil, investors can expect results of drilling the BED4-T100 horizontal well and of fracking the ARF, events that could advance the company's share price.
Echelon Wealth Partners initiated research coverage on TAG Oil on Feb. 26 with a Speculative Buy rating and a target price implying a 129% return for investors. Gill highlighted the company's "very attractive risk-reward proposition" and its solid financial position.
"Taking into account successful results and assuming a 1 Mbbl/d initial production on the horizontal development, we see solid upside potential in the stock," the analyst commented.
Similarly, Haywood Securities wrote in a Jan. 24 note that TAG's market cap and unrisked net present value discounted at 10% "present considerable upside potential."
Ownership and Share Structure
According to Reuters, 10 insider investors together own more than a quarter of TAG Oil, specifically 25.96%, or 47.94 million (47.94M) shares. Listed from highest to lowest ownership, these individuals are Askar Alshinbayev with 16.24% or 29.99 million (29.99M) shares, Director Shawn Reynolds with 3.26% or 6.01M shares, Executive Chairman Abby Badwi with 2.96% or 5.48M shares, Chief Executive Officer and Director Toby Pierce with 0.89% or 1.64M shares, Vice President and Chief Operating Officer Suneel Gupta with 0.86% or 1.59M shares, Chief Financial Officer Barry MacNeil with 0.74% or 1.36M shares, Director Gavin Wilson with 0.62% or 1.15M shares, Director Keith Hill with 0.22% or 0.4M shares, Director Thomas Hickey with 0.14% or 0.26M shares and Corporate Secretary and General Counsel Pino Perone with 0.03% or 0.06M shares.
Institutional ownership amounts to 9.59%, or 17.71M shares. These shareholders are YF Finance Ltd. with 7.04% or 13.01M shares, Purpose Investments Inc. with 1.81% or 3.33M shares, Novum Asset Management AG with 0.55% or 1.02M shares and Palos Management Inc. with 0.19% or 0.35M shares.
Retail investors own the remaining 64.45%.
TAG Oil has 184.66M outstanding shares and 123.71M free float traded shares. Its market cap is CA$66.89M and its 52-week trading range is CA$0.34−0.78 per share.
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